One aspect of the Occupational Tax lawsuit that has not drawn much attention involves an Order entered by the Alabama Supreme Court last summer.  On June 4, 2009, the County filed an application with the Alabama Supreme Court for an emergency stay of the Circuit Court’s Order requiring them to escrow the proceeds of the occupational tax.  The County invoked Act 1953-438, an old local act that exempted Jefferson County from having to post a supersedeas bond when filing an appeal.  Counsel for the taxpayer class objected, stating the County should have to play by the same rules as every other litigant – the Alabama Rules of Civil Procedure. 

The Alabama Supreme Court agreed, and on June 23, 2009 entered an Order that stated: 

Act 1953-438, exempting the County from posting a supersedeas bond, is procedural and is displaced by Rule 62, Ala. R. Civ. P.  See Ex parte Forbus, 510 So. 2d 242, 244 (Ala. 1987).  The omission of an obscure local act from Appendix II, Statutes and Rules Superseded, is not persuasive. … THEREFORE, IT IS ORDERED that the motion to stay is denied without prejudice to the County’s right to apply for a stay in the trial court pursuant to Rule 62(c) upon posting a supersedeas bond satisfactory to the trial court and, upon inability to post a satisfactory supersedeas bond, without prejudice to the County to renew its motion to stay before this Court, accompanied by a record supportive of its inability to do so. 

Thus, Jefferson County now had to play by the same rules as every other litigant.  They had to comply with the Rules of Civil Procedure and could no longer take a free shot at an appeal under the arcane local act it had so long relied upon.  The County did not post a bond; nor did it seek any further stay with either the trial court or the Alabama Supreme Court.  The County instead opted to comply with the directives of Judge Rains and escrowed the funds it collected under the now defunct occupational tax.  This was a major victory for not only the taxpayer class in this case, but as a model of equal justice for all citizens in Alabama – the Alabama Supreme Court made it clear that local governments will be held to the rule of law. 

Unfortunately, Jefferson County doesn’t like to play by the rules the rest of us have to play by.  On February 4, 2010, House Bill 503 was introduced in the Alabama Legislature.  This bill was proffered: 

To authorize Jefferson County, Alabama, to take an appeal from and supersede any judgment, decree, writ or order, in any case in which it is a party, without the necessity of executing an appeal bond, supersedeas bond, dissolution bond, or other bond. 

Clearly, the County does not like the Alabama Supreme Court telling it that it must abide by the rules that govern the rest of us.  The County wants its special treatment back.  It is our hope that the Alabama Legislature will take heed of the ruling of the Alabama Supreme Court and will take a stand for the rule of law.  HB 503 should fail.  Jefferson County must not be allowed to play by its own rules any longer.

Sam Hill, lead counsel for the class of taxpayers in the Jefferson County occupational tax lawsuit, will be discussing the case at the breakfast meeting of the Trussville, Alabama, Rotary Club. 

Said Hill, “I am honored to have the chance to discuss this case with business leaders from the community.  This case doesn’t just impact County government.  The relief we are seeking for the taxpayers will have a positive and far reaching economic impact for the County as a whole.  Not only did the case lead to the enactment of a new, fair and legal tax that is at a rate which is 10% less than the old tax, but the potential refunds to the folks who paid the old tax will reap economic benefits across the County.”

The meeting takes place at the Courtyard by Marriott hotel in Trussville and begins at 7:15 a.m.

Sam Hill and Jim McFerrin, the lawyers who successfully challenged the Jefferson County occupational tax, were featured in a front page story in the Monday, September 14, 2009, Birmingham News.  Please follow this link to read the story.

http://www.al.com/news/birminghamnews/metro.ssf?/base/news/1252916129267930.xml&coll=2

Following the unanimous opinion of the Alabama Supreme Court in the Jefferson County occupational tax case, many questions remain.  First, how much money is due to be refunded to the taxpayers of the County and how much is in the escrow account?  Those questions should be answered by the end of September, when interim Finance Director Travis Hulsey will be required to answer questions regarding the tax proceeds received since the January 12, 2009 Order declaring the old occupational tax invalid.  Mr. Hulsey will also have to account for the sums spent during the stay the trial court granted while the Alabama Legislature was in session this past spring.

Another question is how relief will come to the taxpayers?  Information about who paid the tax and how much each person paid will not be available until employers in Jefferson County prepare W-2 forms in January of 2010.  At that time, a comprehensive list of who is entitled to a refund will be available. How the refunds will happen is an issue currently before the parties and the Court.  There is a sum of money in the escrow account.  There is also a sum that will need to be repaid to the escrow account.  We are confident that an appropriate remedy for the taxpayers will be implemented by the Court, and when the details of that plan are finalized, we will make that information immediately available.

For now, the County appears to have backed off its legally unsupportable position that it is entitled to the money in the escrow account.  With a bridge loan from Regions Bank, which appears to be for the same amount that counsel for the County have indicated is in the escrow account, the County seems to be taking the position that there is no urgency in resolving the escrow account.  While the County has not yet made a proposal for adequate distribution of the refunds owed, we will hold their feet to the fire and move forward with all due diligence in getting a plan in place for providing the Court ordered remedy to the taxpayers of Jefferson County.

What the County has done since the bridge loan became public is file an application for rehearing before the Alabama Supreme Court to challenge the unanimous 43 page opinion entered by the Court.  While procedurally permissible, the filing gives the appearance that the County intends to stretch this process out even longer, with the possibility of filing a petition to the United States Supreme Court to review certain portions of the Alabama Supreme Court’s ruling.  While such a petition is highly unlikely to be granted, the strategy being followed by the County is legal and within the applicable rules of the Courts.  We will continue to zealously advocate the position of the taxpayers of Jefferson County at each step and will work diligently to defeat these attempts to delay the provision of relief to the taxpayers.

For now, we hope the County will do the right thing and work with us quickly to establish a mechanism that the Court will accept to provide refunds.  We also hope the County Commission will do what the right thing and bring its furloughed employees back to work.  The County chose not to secure the escrow account and access funds to prevent the furloughs.  Hopefully, the County Commission has heard the voice of the people and will now demonstrate responsible leadership in bringing those workers back and begin moving the County towards a sustainable financial footing.

On Tuesday, August 18, 2009, the Alabama Supreme Court heard oral arguments in the Jefferson County occupational tax case.  Six justices heard from counsel for both the County and the taxpayers.  Three justices who live in Jefferson County and pay the occupational tax recused themselves from hearing the matter.

During the hour-long oral argument, the justices peppered the lawyers with questions regarding various aspects of the case.   Chief Justice Cobb promised quick action by the Court, acknowledging the expedited briefing and hearing schedule that the Court implemented for this very important case.  Predicting what any court will do with any case is much like reading tea leaves.  We anticipate that the Court will give the matter full consideration and apply the rule of law in reaching its conclusion.

July 16, 2009, was a very busy day in the financial crisis currently facing Jefferson County.  First, Jefferson County Circuit Judge Joseph Boohaker ordered the Jefferson County Commission to reinstate funds to the Jefferson County Sheriff’s Department budget.  Further, the Court directed both parties to negotiate in good faith to amend the Sheriff’s budget for the remainder of the fiscal year.  At the same time, Governor Bob Riley refused to declare a state of emergency for Jefferson County, saying that his power to declare states of emergency does not cover financial crises.  Additionally, the County Commission agreed in a civil lawsuit pending before Circuit Judge Scott Vowell that they would not take steps against Cooper Green Mercy Hospital without notice to the Court – while a protest against the County Commission’s proposed cuts to the hospital took place on the courthouse steps.  And, to top it all off, the County Commission announced that the lay-offs of hundreds of workers may be avoided by 30-45 day leaves of absence, during which time the effected employees would continue to have insurance coverage.

Amid this swirl of activity, the legislative delegation continues to debate the necessity of enacting some new form of the occupational tax and how such a potential new tax could work legally.  Jefferson County Representative John Rogers, in an interview with the Birmingham News, reiterated that he and other members of the legislative delegation approached the County Commission five years ago about the legality of the occupational tax and the necessity to fix it.  Representative Rogers states that their overtures were rejected.

Judge Boohaker made an interesting finding on page 15 of his Order, based on the testimony of Jefferson County Director of Revenue and acting Finance Director Travis Hulsey:

Hulsey testified that though the budget approved provided for a transfer into the General Fund of $17,421,500 from the Bridge and Public Building Fund, this transfer was never made.  The transfer would have been possible had this sum not been encumbered with the payment of debt obligations paid from the Bridge and Public Building Fund.  However, the expected claims on the said fund were more than originally anticipated which meant that the said 17,421,500 transfer could not be made.

This finding raises questions not only about the management of the General Fund, which received approximately 24.5% of its annual income from the occupational tax, but also the management of other funds under the control of the County Commission.  Not clear from Mr. Hulsey’s testimony is what debt obligations were paid with the $17,421,500 that could have been paid into the General Fund and that would have alleviated the short-fall currently faced by the County. When taken in consideration with the ever-changing position of the County Commission regarding its proposed cuts, more questions are raised than answered.  There is no question that a major overhaul of the County’s financial operations will result from the invalidation of the occupational tax and that, taken in conjunction with the sewer debt debacle, a financial crisis looms.  However, it becomes clearer each day that the issues facing Jefferson County extend far beyond the validity of the occupational tax.

The last several weeks have provided a number of positive trends for consumers.  First, as widely reported in the media, the Obama administration has proposed the development of an agency to be known as the Consumer Financial Protection Agency to set standards for banks and mortgage lenders to follow for mortgage loans, investigate financial institutions and enforce the new credit card consumer protection laws recently passed by Congress.  The new agency would step in and centralize responsibilities that are now divided among several governmental agencies, and would have the authority to restrict or prohibit mortgages that take advantage of consumers through hidden fees. The proposal is strongly supported by consumer advocates and, not surprisingly, is drawing the ire of the banking industry.

As the administration moves forward with attempts to strengthen consumer protection in light of the ongoing financial crisis, the administration is clearly moving away from the position of the Bush administration seeking Federal preemption of state regulations.  The Obama administration appears to be encouraging states to take a stronger stand on behalf of consumer protection – a move that could be seen as a major turning point for consumers across the country.

In another interesting development, the Third Circuit Court of Appeals has issued an opinion finding the Federal Nursing Home Reform Amendments allow residents of county-run nursing homes to seek redress for poor treatment under the civil rights laws of the United States.    As the Court stated, “The language used throughout the FNHRA is explicitly rights-creating.  … These provisions make clear that nursing homes must provide a basic level of service and care for residents and Medicaid patients.”  The Court went on to state that residents of county-run nursing homes have the right to be free from abuse, involuntary seclusion, and discipline that is physical or chemically restraining that is not required to treat a medical condition or symptom.    Hopefully more Circuits will adopt this opinion and bring the protection so desperately needed to nursing home patients across the country.

On June 4, Judge David Rains denied Jefferson County a further stay of his Order requiring money collected under the occupational tax  he declared illegal in January to be held in escrow pending an appeal to the Alabama Supreme Court. “Unfortunately this court has no confidence that this matter can reach a political or legislative solution so long as the court provides shelter from the crisis,” Rains wrote in his opinion. “If this court or the Supreme Court grants a further stay there will be no incentive for the county and its legislative delegation to resolve the matter.”

Under a prior Order, the County Commission must now hold all money collected after May 18, 2009.  The Alabama Legislature refused to pass a new occupational tax for Jefferson County in this year’s session – leaving the matter for the courts to decide.  The County has appealed the Order holding the tax is illegal.  They have sought a prior stay of the Order from the Supreme Court, which denied them relief and sent the issue of whether a stay should be granted to Judge Rains.  The County has sought and been granted extra time to file their appeal brief.

Since January 12, 2009, when the Judge David Rains held that the repeal Jefferson County occupational tax was valid and the taxpayers of Jefferson County were owed a refund, the Jefferson County legislative delegation has attempted to craft statutory fixes for the tax.  Each bill has been constitutionally and procedurally flawed.  Beyond those flaws – each bill tries to take away the refunds granted to the taxpayers of Jefferson County.  And – as if to add insult to injury – two of the bills attempt to increase the occupational tax.  Although they do not come right out and say it – from all appearances the Jefferson County legislative delegation is trying to fix the sewer debt problems by increasing the occupational taxes paid by workers in Jefferson County. 

While a legislative solution is clearly needed, any bill that gets passed granting the Jefferson County Commission the authority to levy an occupational tax needs to be one that is not only fair to the tax payers of Jefferson County, but also constitutionally and procedurally sound. 

Here is a summary of the three bills currently pending before the Alabama Legislature regarding the ability of the Jefferson County Commission to levy an occupational tax:

Senate Bill 488 was introduced by Senators Coleman, Waggoner, Smitherman and French.   This bill attempts to “repeal the repeal” of the occupational tax, which effectively takes away the relief awarded to the taxpayers of Jefferson County by the Court.  It attempts to allow the Jefferson County Commission to proceed as if that lawsuit never existed.  Additionally, this bill allows the tax to be levied at the same rate as the occupational tax collected by the city of Birmingham, which is one percent.  The tax that Judge Rains correctly held was repealed was levied at the rate of one-half of one percent.  Effectively, this bill would give the Jefferson County Commission the authority to raise the occupational tax by one-half of one percent – doubling the tax they have been illegally collecting since April of 2000.

Senate Bill 542 was introduced by Senators Waggoner and French.  This bill also attempts to “repeal the repeal” of the Jefferson County occupational tax.  Under this plan, the occupational tax that the Jefferson County Commission has been collecting since April of 2000, with all of its exceptions and carve-outs, would be affirmed and there would be no relief for the taxpayers who won the lawsuit which found the repeal to be valid.  The tax rate of one-half of one percent would continue to be collected by the Jefferson County Commission as if the lawsuit won by the taxpayers never happened.

House Bill 811 was offered by Representatives Rogers, Robinson, Dunn, Moore and Scott.  This bill takes elements of both Senate Bills, and combines them into a bill attempting to “repeal the repeal,” effectively taking away the refunds awarded the taxpayers of Jefferson County, while allowing the Jefferson County Commission to increase the rate at which the occupational tax is levied.  This bill also earmarks funds to be paid from the increased tax to the BJCC and the Transit Authority.

Each of these bills suffers from major constitutional flaws.  First, under Article IV, Section 70 of the Alabama Constitution, “All bills for raising revenue shall originate in the house of representatives.”  Any bill relating to raising revenues that is introduced through the senate violates this provision of the Alabama Constitution.  As each of the Senate Bills was introduced through the wrong chamber of the Alabama Legislature, neither can stand constitutionally.    

Further, Article IV, Section 95 of the Alabama Constitution provides, “[T]he legislature shall have no power to revive any right or remedy which may have become barred by lapse of time, or by any statute of this state.  After suit has been commenced on any cause of action, the legislature shall have no power to take away such cause of action, or destroy any existing defense to such suit.”  The taxpayers of Jefferson County won the lawsuit and were awarded refunds.  The repeal of the occupational tax is valid.  The legislature cannot now “repeal the repeal” and make valid the Jefferson County Commission’s right to levy the old occupational tax.  That right was barred by statute and that statute was upheld by Judge Rains.  Further, the legislature cannot take away the lawsuit from the taxpayers of Jefferson County.  These bills provide nothing more than an attempted end-around by the Jefferson County legislative delegation past the Courts of this State.  Each of these bills violates this constitutional provision. 

Particularly disturbing is the Alabama Legislature’s attempt to not only take away the refunds awarded to the taxpayers, but through Senate Bill 488 and House Bill 811 actually increasing the occupational taxes the Jefferson County Commission can levy.  Under the current economic situation facing the taxpayers of Jefferson County, to potentially double the existing invalid occupational tax is obscene.  

If the Alabama Legislature wants to create a fix for the Jefferson County occupational tax, then a new tax bill – one that is fair to the taxpayers working in Jefferson County – should be offered in the house of representatives.  While the Jefferson County legislative delegation may have acted imprudently in repealing the original occupational tax in 1999, their actions were legal and valid.  The Alabama Legislature must recognize the validity of the repeal and any authority given to the Jefferson County Commission to levy an occupational tax must be under a new, fair and legally valid bill. 

There is no question that Jefferson County is in a treacherous financial position.  Whether or not a new occupational tax is a solution to the problems created by out-of-control spending and lack of fiscal responsibility is yet to be seen.  However, should the Alabama Legislature choose to put the ability to levy a new occupational tax in the hands of the Jefferson County Commission, then such authority should be given careful consideration so that any new tax that is levied is fair and legally sound.  As taxpayers and voters in Jefferson County, we should accept nothing less.

On January 12, 2009, Judge David Rains, sitting by designation in the Circuit Court for Jefferson County, entered an Order upholding the repeal of the Jefferson County Occupational Tax. Hill | Turner LLC, has the privilege of representing the taxpayers of Jefferson County in this case. We are taking this opportunity to explain what this case is and is not about. 

First, this case is not about bankrupting Jefferson County or the sewer debt debacle that we hear so much about.  This lawsuit was filed in May of 2007, long before the headlines about bond insurers and defaulted payments gained negative national attention for Jefferson County.  Nor is this a lawsuit about the fairness, or lack of fairness, in how the old tax was applied. 

What this case is about is far more simple – trusting our elected officials to work together and follow the laws of this State for the betterment of our community.

Under Alabama law, the Jefferson County Commission cannot unilaterally enact an occupational tax.  That power is reserved to the State Legislature. 

Judge Rains detailed the history of the occupational tax in his Order.  The key developments as they relate to our case are as follows:  In 1999, the Jefferson County delegation to the Alabama Legislature voted to repeal the occupational tax.  The County Commission filed a “very friendly” lawsuit (as Judge Rains identified it in his Order) to invalidate the repeal on procedural issues related to how the Alabama Legislature counts its votes.  The County Commission continued to collect the tax.  In 2005, a case decided by the Alabama Supreme Court determined that the courts of this State could not tell the Alabama Legislature how to count its votes. 

Judge Rains’ decision follows the law as spelled out by our Supreme Court.  The law was clear: the legislature had legally repealed the tax, and the County Commission chose to ignore that repeal instead of working with our delegation to fix the problem.  Workers in Jefferson County were paying a tax that was not valid.  Judge Rains agreed, and now the repeal stands.   Though Judge Rains stayed the execution of his Order until the current legislative session ends on May 18, 2009, we expect any appeal to be decided favorably for the taxpayers of Jefferson County and that there will be refunds to the taxpayers at the conclusion of this case. 

We know the issue of the occupational tax won’t end here.  The County Commission has already voted to take this lawsuit further through an appeal to the Alabama Supreme Court.  However, we are hopeful that the County Commission will do what we, the taxpayers and voters in Jefferson County, expect of them and work with the legislative delegation to do the people’s business.

Judge Rains’ order gives both the County Commission and the Jefferson County legislative delegation the opportunity to demonstrate leadership and restraint.  Although the Alabama Constitution prohibits the Legislature from eliminating the remedy handed down by Judge Rains as to the old occupational tax, the legislature can, with the involvement of the Commission, adopt a new, fair, universal, occupational tax.   

If there is going to be an occupational tax in Jefferson County, it needs to be legally enacted by the Alabama Legislature and implemented by the Jefferson County Commission.  As voters and taxpayers, we hope these bodies will take into consideration not only the well documented financial problems our County Commission has created, but also the difficult financial circumstances faced by our citizenry.  The occupational tax is only but a symptom of the problems faced by Jefferson County – it is not a cure.  The real cure can only come when our elected officials put aside their egos and work together to do the jobs we elected them to do – no matter how much they personally dislike the result. The future of Jefferson County depends on it.